Bob Trebilock, editor of the Supply Chain Management Review, sent me an interesting email today that poses an interesting set of questions.

Bob writes:

“A friend sent me an email today with a link to a column by Peter Morici, a well-known conservative economist and writer (you see him on Xerox commercials wearing a bow tie) titled: Lift Vocational Education, not Minimum Wage, to Fight Inequality.”

Bob Trebilock, editor of the Supply Chain Management Review, sent me an interesting email today that poses an interesting set of questions.

Bob writes:

“A friend sent me an email today with a link to a column by Peter Morici, a well-known conservative economist and writer (you see him on Xerox commercials wearing a bow tie) titled: Lift Vocational Education, not Minimum Wage, to Fight Inequality.”

Morici argues that we don’t need to raise the minimum wage for those jobs that pay minimum wage – that’ll only create more unemployment because companies with low wage jobs will just automate rather than pay the higher wage. He uses the example of McDonald’s investigating automation technologies to replace workers in its restaurants. Instead, he argues that we should encourage and support vocational education that will train workers for higher paying jobs. Not to step into the match, but I write about warehouse and factory automation. DCs and plants have been automating for years to eliminate the number of higher paying jobs on the shop floor, and that ain’t going to change. But, that’s not my question.

The NYT has an article about how fast food restaurants like McDonald’s and Burger King pay $20 an hour – a living wage – in Denmark.

Here are the sentences that caught my eye in the NYT article:

“In interviews, Danish employees of McDonald’s, Burger King and Starbucks said that even though Denmark had one of the world’s highest costs of living — about 30 percent higher than in the United States — their $20 wage made life affordable.

True, a Big Mac here costs more — $5.60, compared with $4.80 in the United States. But that is a price Danes are willing to pay. “We Danes accept that a burger is expensive, but we also know that working conditions and wages are decent when we eat that burger,” said Soren Kaj Andersen, a University of Copenhagen professor who specializes in labor issues.”

Bob asks an interesting question:  Is the notion of paying a higher wage – whether it’s $10 an hour, $15 an hour, or $20 an hour – a potential competitive advantage by a company touting what it does to lift domestic workers out of poverty?  Many companies today use certifications and labeling to argue that they’re charging a higher price for coffee or tee shirts to benefit workers in Ethiopia or Bangladesh.  But could that same argument be used as a basis for lifting American workers out of poverty?

This is a compelling argument.  But it boils down to whether the American public will pay more for their burger knowing that it is helping someone make a living wage.  Some of the research we have done through the Center for Environmental Farming suggests that consumers SAY they will pay more for a locally grown product – but the empirical evidence doesn’t always support that.

Andrew Pederson, a co-author on a joint article soon to be published in SCMR who has a great deal of experience working in the fair labor space, provided his input:

“My short answer is yes, though I wouldn’t accept a dogmatic view either way.  Income is absolutely the most important factor in reducing poverty and improving living conditions generally, and both vocational education and higher minimum wages would likely contribute to higher incomes.  It’s also very tricky to measure, and the corporate I’ve worked on previously have been highly politicized and deeply suspected by journalists and the general public.

So far, most consumers haven’t shifted their buying criteria very far from price, either because they cannot afford to do so or because the “externalities” now being priced back into some products are not important to them.  I would like to believe that the former is true, and that as greater production efficiency from automation and other technological innovations eliminates jobs we are quite literally unwilling to pay humans enough to do, the labor market will shift to more valuable skills that will increase incomes. As incomes increase, perhaps then a majority of consumers will be more able and willing to pay the more expensive prices that will drive lasting changes in sourcing and production.” 

My colleague Andreas Wieland (who is German) actually lives in Copenhagen Denmark, and added his two cents:

“Denmark is really expensive compared to Germany, where people mainly look at the price of products. Unlike in Berlin, where I could afford going to a restaurant almost every day, this wouldn’t be possible here. However, the quality is also very high, as Danes like high quality.

Meat is usually organic here. When you look at wages you also have to see that 20 euros in Denmark cannot be compared to 20 euros in North America, as the social system in Europe has, of course, quite a high standard and the wages are especially high in Denmark.

What you can see here, too, is that Danes tend to buy a lot of organic and social-friendly products. This is, because of the higher standard of living than in the U.S., which makes such products affordable for almost everyone, but also because being eco-friendly is part of the Scandinavian culture.

I also see less Danes buying in chains like H&M than in Germany or especially in the U.S. This also indicates that Danes like high quality and are mostly rich enough to afford it. I think it is part of the culture and culture changes slowly.”

The Price of a Big Mac in Denmark: Worth the wages? is republished with permission from The Supply Chain View from the Field

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More and more global luxury brands such as Gucci, Louis Vuitton, and others are promoting themselves as Lifestyle brands, spanning many products including fragrance, home collections, apparel, paint, wallpaper, foods, and many other products.  In this environment, the supply chain and logistics task becomes even more complex, as it involves delivering and fulfilling product and service support to deliver a lifestyle “vision” around the world. Many of the Lifestyle brands are licensed across multiple geographies.

More and more global luxury brands such as Gucci, Louis Vuitton, and others are promoting themselves as Lifestyle brands, spanning many products including fragrance, home collections, apparel, paint, wallpaper, foods, and many other products.  In this environment, the supply chain and logistics task becomes even more complex, as it involves delivering and fulfilling product and service support to deliver a lifestyle “vision” around the world. Many of the Lifestyle brands are licensed across multiple geographies. In this environment, supply chains are not “pull”, but rather “push” in nature.    Designers decide on a life style concept, and plan on what they are going to sell – which is a PUSH-based supply chain.  Such brands may ship small runs of five bags, gowns, or shoes that cost thousands of dollars, whereas typical apparel products are produced in volumes of hundreds of thousands going to low cost retailers.   In this environment, global luxury brands have to design their supply chain based on who they are today, and who they are trying to be based on the projection of their image to the public.

A pull-based supply chain is different – the system recognizes the demand trigger and reacts to it.  But for luxury brands, designers are making decisions TODAY about what people might be wearing in 15 months. Luxury brands are also not like “fast fashion companies” like Gap, Zara, H&M, and others – they buy fabric, throw it out, find out what sells, and make more of it!  Global luxury brands may produce a single product one time, and never produce it again….ever.  These products are sold as a “look” – that is to say, they include several different products that will arrive at a merchandise location at the same time that fit together for an overall lifestyle design feel and aesthetic.  Delivery reliability is much more important than speed in this environment.

The nature of pricing and timing is critical for this industry. Designers are by their very nature fickle creatures who change their mind frequently, choosing new fabrics, new designs, new colors, and often challenging materials – and that is what makes our supply chain difficult.  Affluent consumers are willing to pay for higher-margin merchandise, but only for a very short time.  They will pay a price that yields 70% gross margins, which converts to negative margins in 12 weeks.    A fashion item loses value very quickly, and if not sold during a very short season won’t be worth anything a week later. The supply chain design is very much focused on contract manufacturing to a network of factories.  This is a challenging sourcing base, and global luxury brands must also pay attention to general labor and supply chain compliance policies. Designers will specify fabrics to contract apparel cut and sew operations – which require alignment of networks.

Most of the luxury brands’ global supply chain manufacturing networks are in Asia, with the biggest location being China – which is becoming too expensive.  There has been a strong push for more US manufacturing in recent years.  The problem, of course, is that companies struggles to find individuals who are willing to work in apparel manufacturing plants. Another interesting observation is that many luxury brands ship to retailers at the end of the month, because big retailers such as Saks, Macy’s, Penny’s, and others are measured on “open to buy dollars” and “investment productivity”.  These retailers will snapshot their inventory productivity at the end of every month for the financial analysts…which means the brands must ship to these retailers at the end of our month….which are then received into inventory the very next day at the beginning of the next month, to ensure the measures look good.! The entire apparel supply chain is driven by these financial metrics.  A lot of the supply chain behaviors are driven by these financial measures, compensation systems, and bonuses are based on that metric.

Global Luxury Management “Lifestyle” brands require push supply chain design customization is republished with permission from The Supply Chain Resource Cooperative

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